San Bernardino Sealcalpers

By Ed Mendel
Monday, June 23, 2014

Bankrupt San Bernardino announced an agreement with CalPERS last week to pay off an unprecedented pension debt owed for skipping payments to the pension fund for a year — $13.5 million, plus several million more in penalties and interest.

Details of the agreement reached in closed mediation were not released. But the city said in a court filing the CalPERS agreement “will help form the basis” for a debt-cutting plan needed to exit bankruptcy.

Whether the city’s “interim agreement” with CalPERS means the city’s debt-cutting “plan of adjustment” to exit bankruptcy will exclude pensions is not revealed in the court filing.

San Bernardino has not publicly proposed a pension cut. A sketchy plan for operating in bankruptcy only proposed a “fresh start” that would “reamortize CalPERS liability over 30 years,” perhaps cutting costs $1.3 million in the first year.

Last week, an attorney for San Bernardino emphasized the importance of the city’s relationship with the pension system during his opening remarks at a status hearing with U.S. Bankruptcy Judge Meredith Jury.

“The importance of this agreement to mediation and the case cannot be overstated because of the size of the CalPERS claim, the importance of CalPERS and its relationship to the city and because the city believes based on discussions with unions and retirees that sustaining their relationship with CalPERS is very important,” said Paul Glassman, the San Bernardino Sun reported.

The cash-short city’s decision to skip employer payments to CalPERS, after an emergency bankruptcy filing in August 2012, would be grounds for termination of its CalPERS contract, if the city was not in bankruptcy. The city resumed payments last July.

CalPERS responded by attempting to sue San Bernardino for payment in state court. The federal bankruptcy judge blocked the attempt, saying employee pay would be threatened and the ability to reorganize in bankruptcy undercut.

Then CalPERS opposed San Bernardino’s eligibility for bankruptcy, followed by an appeal when the judge ruled the city eligible. The agreement announced last week delays action on the appeal.

CalPERS also filed a brief in support of an appeal by the state Department of Finance and the state Controller of the bankruptcy judge’s ruling protecting $15 million in city tax revenue.

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